Aspef proves fruitful for Agribank

RECENTLY published results from the banking sector not only belie what the sector went through in the first six months of the year but also raise eyebrows over whether the playing field is level or not. In a way the numbers also usher in a new era wher
e some of the indigenous institutions are obviously creaming it whilst the big five appear to be scrambling for crumbs.

Unlike the manufacturing industry and exporters banks have never been publicly called “cry babies” but towards the end of March this year the Bankers Association of Zimbabwe (BAZ) rather uncharacteristically wrote an epistle to the Reserve Bank expressing concern about the precarious position that the sector found itself in following the tightening of the monetary policy stance.

The point underscored in the letter was that each of the largest five banks — presumably based on asset and deposit size — was borrowing in excess of $1 trillion (old currency) from the central bank on a daily basis and in so doing incurring interest expenses in excess of $20,5 billion daily. It was noted that such a situation was unsustainable even for the large banks.

The smaller banks, although borrowing less, were in a similar position, with viability under serious threat. It was further mentioned that because the accommodation rate was 750% per annum and the average yield on treasury bills was much lower such that the banks were carrying the treasury at a huge cost and actually at their own expense.

The final point was to emphasise that, should the situation not be rectified, the sector was unlikely to achieve the September 30 capitalisation deadline.

The central bank took time to respond with a reprieve not coming until towards mid-May. So, as from February right up to early May the banks were haemorrhaging. The central bank first responded by introducing 365-day CPI linked bonds with a bi-annual coupon.

Secondly, the 91-day Treasury Bill yield was reduced from 525% to 200%, which indirectly reduced the funding costs for the banks. In June, the central bank further lightened the burden on the sector by reducing the statutory reserve ratios. The banks were then able to breathe comfortably again. Thus the sector’s latest results for the six months to June 2006 exhibit an extraordinary recovery. It would be wonderful if the same was to happen to the whole economy.

Agribank, long thought of as a basket case of the sector lacking in entrepreneurialship and dependent on annual injections of funds from the fiscus stole the limelight — from CBZ — with some spectacular figures. On the other hand, banking behemoth, Barclays left many wondering whether there had not been a typing error or an interchange of the numbers with those of Metroplitan.

After convincing themselves that it really was Barclays’ results, the next step was to check on the reporting currency. Barclays recorded interest income of $8,5 trillion (old currency), which was an increase of 1 041% on prior period. Interest expenses at $8,5 trillion were aberrantly high resulting in a net interest income of just $168 billion. An increase in fees and commission income of 1 291%, to $1,3 trillion, added to inflows from foreign currency trading, dividend and profits on disposal of assets of $286 billion, $5 billion and $9 billion, respectively, saw the bank recording total income of $1,8 trillion.

Of this income, $1,3 trillion went towards meeting the cost of running the bank, $106 billion was the provisioning for impairment losses on loans and advances and $170 was a provision for the taxman leaving shareholders with only $284 billion to share amongst themselves.

Notwithstanding the embarrassing performance, Barclays still commands a lot of respect as far as depositors are concerned. The bank remained in third place with roughly $17 trillion in deposits, closely following CBZ Bank with $18,2, trillion whilst Stanchart and Stanbic are in pole and fourth position with liabilities to the public of $24,5 trillion and $15,2, trillion respectively. Zimbank, the perennial underperformer, which basically suffers from a similar ailment to Barclays, that of high funding costs, commands fifth position owing $15,5 trillion to the masses. The latter’s bottom line for the six months was a mere $141 billion.

Another institution to pull a huge surprise was Interfin Merchant Bank, an accepting house which during the heady days of 2002-3 made the likes of FBC, MBCA and others look like small boys. Merchant banks have since, the tide turned in 2004, been forced to find new sources of sustenance. Foreign currency trading inflows have dried up in a big way and the advisory field now seems to be dominated by boutiques.

Consequently, heavy reliance is now being placed on the wholesale money market and structured finance. The wholesale money market, however, burnt Interfin as it recorded negative interest income of $231 billion. Salvation came from non-funded income of $445 billion which, after deducting operating expenses, provisions for bad and doubtful debts and taxation, saw only $22 billion remaining in the kitty. This result in no way compares with compatriots, Renaissance, ABC Zimbabwe and Premier who achieved profits after tax of $784 billion, $693 billion and $1,2 trillion, respectively.

The board chairman of Interfin was sincere in his concluding remarks thanking clients, staff, management and fellow board members for having persevered and supported the bank in the particularly painful and stressful period just completed.

Agribank recorded net interest growth of 2 925% to $4,8 trillion, with the good performance having hinged on increased RBZ funded agricultural development loans in the form of Aspef and PSIP and, to a lesser extent treasury bills and money market placements. We understand the margin for the bank on these RBZ facilities was nearly 34%, which was above the 29% average for the whole sector. Total advances amounted to $7 trillion and only $382, 4 billion was provided for bad debts, not unexpected really given that the bulk of the funds were “rolled” over anyway upon expiry of the facilities. With such a top line performance, profits after tax were no doubt going to be something to remember with $2,4 trillion being realised, outshining some of the sectors’ beacons such as Stanchart, CBZ and Barclays.